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With the sale process of Satyam Computer Services expected to begin shortly, prospective bidders and institutional investors have ramped up their activity. Various prospective bidders have cropped up and atleast one foreign institutional investor has smelled easy money to be made in the company, according to a Bloomberg .

“We expect we should be able to make an announcement in a few days,” according to Satyam chairman Kiran Karnik who added that the regulatory approval for the sale which is likely be through an international bidding, “shouldn’t take more than a few days.”

PROSPECTIVE BIDDERS

Diversified giant L&T has been the first to announce that it is interested in acquiring Satyam to expand its IT vertical. The firm has shown seriousness by buying aggressively when the price skid to sub Rs 30 level, bringing down the average cost of acquisition significantly over the last one and half month.

Others who are in the fray include Tech Mahindra (co-promoted by Mahindras and BT), maverick businessman BK Modi of Spice Group and UK-based Hindujas who have various businesses in India. Besides these, reportedly there are a few private equity funds in the fray.

Street talk suggests some of the prospective bidders may look at bankrolling the transaction through a joint bid with a financial investor. This could be a real possibility given fund crunch and companies looking to save cash at a time when banks are loathe to lend.

In the meanwhile, this report, quoting a Gartner analyst said that clients of Satyam would be open to having a non IT firm acquiring the firm. This could support entry of a private equity fund to bid aggressively even without having one IT firm to manage Satyam in case the fund wins the auction. In such a scenario the PE fund can look to rope in a reputed CEO to lead the company purely with its mid-long term financial investment.

Besides PE funds, such a scenario could also support the bid of a large Indian business group who is not into IT. Although BK Modi has been vociferous about his interest in Satyam despite apprehensions about how serious he is in the company, clients of the IT firm could also look at staying with the firm if Modi gets on board a top notch CEO for Satyam.

Though all this adds up to a few strategic acquirers, there is also the possibility of a dark horse to emerge. In all likelihood this could be a large Indian business group which has significant amount of cash (from a sale of business say former Ranbaxy owners for example) and has fledgling IT business.

SMELLING PROFITS

Even as the formal sale process of Satyam is yet to kick off, some institutional investors have already seen value in the company. US based asset management giant, Fidelity, has hiked its holding in the company to 10.17%. Now it stands next to L&T, who holds 12% in the IT firm, as the second largest shareholder in Satyam.

VALUATION

The biggest issue for any prospective bidder would be buying something who’s worth is unknown. One rumour suggests the company has actually been understating its profits all these years, which could be a big positive for any acquirer. Since the accounts of the company has been fudged as per the admission of the company’s founder B Ramalinga Raju, the basic valuation criteria such as EBITDA multiples etc may not be relevant in this case.

According to this report, which pegs the market value of Satyam’s existing assets after factoring out short and long term liabilities, then the firm’s value could be around Rs 4,000 purely by asset valuation.

This translates into a value of Rs 59 per share as against its ruling market price of Rs 39, i.e., the stock’s trading almost 33% discount to the value of the asset it holds. Incidentally, the stock price had hit a upper price band of Rs 60 after the fraud came to light. Satyam’s assets are largely locked into lucrative real estate in Hyderabad with offices in some prime locations.

In the meanwhile, some institutional investors in L&T are believed to have taken a cautious stand and have indicated that the firm put a ceiling of Rs 50 per share in its bid for Satyam. This claim, which has not been substantiated, can keep out L&T from making an aggressive bid. But this is likely to be contested by L&T’s management as it is the largest shareholder in the firm and has an average acquisition cost of around Rs 70-80 per share.

L&T has reportedly appointed Citibank and Nomura as advisors for its prospective bid for Satyam.

BUSINESS AS USUAL IN UNUSUAL TIMES!

Satyam’s new CEO AS Murty in his first overseas trip to Singapore as the key spokesman of Satyam said “It’s business as usual at Satyam”. Singapore happens to the headquarters for Satyam’s “Rest of the World” (RoW) operations, which include Asia-Pacific, the Middle East, India and Africa. The visit was aimed at restoring stakeholders’ confidence.

Murty has been quoted as saying, “Our customer base remains intact and all of our clients have chosen to stand by us during these challenging times. And, since the beginning of 2009, we have seen a record level of new contracts in the region, which shows the confidence our customers and the industry continue to have in us.”